Corporate crime is far too common

If we’re to believe what we see in the media, we’re being engulfed by a corporate crime wave. An outbreak of business lawlessness that engages in “wage theft”, mistreatment of franchisees, abuse of workers on temporary visas, and much else.

But should we believe it? Regrettably, my years as a journalist have taught me not to believe everything I read in the paper (this august organ excepted, naturally).

News gathering is a process of what when I was an accountant I would have called “exception reporting”. That’s because people find the exceptions more interesting than the ordinary, everyday occurrences.

When the exceptions pile up, however, the risk is that they’re taken by readers to be representative of the wider reality.

So, in the case of businesses behaving badly, how exceptional are the exceptions? The answer from Rod Sims, chairman of the Australian Competition and Consumer Commission, in a speech he gave last Friday night, is not as exceptional as you’d hope.

To prove his point, Sims offered an extraordinary list of the commission’s enforcement activity, just in the month of April this year.

Ford was ordered to pay $10 million in penalties after it admitted that it had engaged in unconscionable conduct in the way it dealt with complaints about PowerShift transmission cars, sometimes telling customers that shuddering was the result of the customer’s driving style despite knowing the problems with these cars.

Telstra was ordered to pay penalties of $10 million in relation to its third-party billing service known as “premium direct billing” under which it exposed thousands of its own mobile phone customers to unauthorised charges.

Thermomix paid penalties of more than $4.5 million for making false or misleading representations to certain customers through its silence about a safety issue affecting one of its products which the company knew about from a point in time.

Flight Centre was ordered to pay $12.5 million in penalties for attempting to induce three international airlines to enter into price-fixing agreements.

K-Line, a Japanese shipping company, pleaded guilty to criminal cartel conduct concerning the international shipping of cars, trucks and busses to Australia.

Woolworths had proceedings instituted against it alleging that the environmental representations made about some of its Homebrand picnic products were false, misleading and deceptive.

Phew. Surely that was an exceptional month. But Sims has more cases to list.

Earlier this year, the Federal Court found that the food manufacturer Heinz had made misleading claims that its Little Kids Shredz products were beneficial for young children, when they contained about two-thirds sugar.

Who could forget the case of four Nurofen specific pain products? Their packaging claimed that each was specifically formulated to treat a particular type of pain when, in fact, each product contained the same active ingredient and was no more effective at treating that type of pain than any of the others. “The key difference was that the specific pain products were near double the price of the standard Nurofen product,” Sims says.

Hotel giant Meriton was caught taking deliberate steps to prevent guests it suspected would give an unfavourable review from receiving TripAdvisor’s “review express” prompt email, including by inserting additional letters into guests’ email addresses.

The court found this to be a deliberate strategy by Meriton to minimise the number of negative reviews its guests posted on TripAdvisor.

Optus Internet recently admitted to making misleading representations to about 14,000 customers about their transition to the national broadband network, including stating that their services would be disconnected if they didn’t move to the NBN, when under its contracts it could not force disconnection within the timeframe claimed.

Pental has admitted that it made misleading claims about its White King “flushable” cleaning wipes, saying they would disintegrate in the sewerage system when flushed, just like toilet paper, when our wastewater authorities are having big problems because the wipes can cause blockages in their systems.

Shocking. But, you may object, isn’t this just more anecdotes? How representative are they? Sims acknowledges that not all companies behave poorly.

He says that “poor behaviour usually occurs on a spectrum, with few companies behaving badly often, but rather many engaging in occasional significant instances of bad behaviour” – which, he insists, remains unacceptable.

So what can the commission and the government do to reduce the incidence of unacceptable behaviour?

Since businesses commit these excesses in their completely legitimate pursuit of higher profits, the key is to increase the cost to them of bad behaviour.

Many firms invest heavily in their brand reputation, which is a signal that they can be trusted. “The greater the likelihood that bad behaviour will be exposed and made public [see above], the more companies will do to guard against such behaviours.”

In their amoral, dollar-obsessed way, economists assess the attractions of law breaking by weighing the benefit to be gained against the cost of being caught multiplied by the probability of being caught.

Leaving aside the cost of reputational damage (just ask AMP if it knows about that), if you can’t do as much as you should to increase the chance of being caught, you should at least wack up the fines.

Sims says that “the penalties for misconduct, given the likelihood of detection, are comparatively weak”. He believes he’s had some success in persuading the Turnbull government to increase them.

“Just imagine if the penalties I mentioned [see above] were 10 to 20 times higher,” he concludes.

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Digging up a lot more coal won't bring more jobs

One thing I admire about greenies is their soft hearts. Whereas big business pushes its self-interest to the exclusion of all else, environmentalists worry that, in their efforts to save the planet, some workers may lose their jobs.

What worries me, however, is the greenies’ soft heads. Many of them profess to a soul above such sordid (and boring) matters as economics, but the less you know about economics the more easily you’re taken in by developers’ and politicians’ promises of Jobs and Growth.

Greenies know that the “green economy” creates jobs and growth, but worry that their opposition to the building of new thermal coal mines would cost jobs and growth.

So does the miners’ union. Hence the advent of “just transition” – the notion that the transition from fossil fuels to renewables needs to be “just” in that people who lose their jobs in the fossil fuel industries get treated fairly.

Fair enough. Trouble is, if you think the goal is to eliminate the need for workers and regions to change, rather than to help workers adjust to the reshaped economy – you end up doing crazy things like insisting new solar and wind farms are built near the old coal mines, rather than where there’s most sun and wind.

A particular sore point at present is the greenies’ implacable opposition to the establishment of Adani’s Carmichael coal mine in the Galilee Basin of Queensland. What about all the potential jobs and growth that wouldn’t happen?

Well, perhaps it’s not as big a problem as it seems. The thing about the economy that non-economists keep forgetting is that “everything’s connected to everything else”. And as the economists at the Australia Institute remind us in a new paper, when you trace through the linkages you realise that development of the Galilee Basin could be expected to displace a lot of mining jobs – maybe even more than it created.

First point, the Adani mine would be huge. It aims to produce 60 million tonnes of coal a year, making it three times the size of the highest producing mine in NSW.

And if some government subsidises a railway linking Adani’s mine to the nearest port, this would clear the way to building other mines in the Galilee Basin, which could take the basin’s total production to 150 million tonnes a year by 2035.

Australia is already the world’s largest coal exporter. Modelling by commodity analysts Wood Mackenzie, commissioned last year by the world’s largest coal export port, Port of Newcastle, estimates that such increased production would raise the world supply of internationally traded coal by about 15 per cent.

Wood Mackenzie estimates that, assuming the Paris agreement has little effect and world demand for traded thermal coal rises by 10 per cent out to 2035, the excess of supply over demand would cause coal prices to be $3 a tonne lower than otherwise in 2026, rising to $25 lower in 2030.

(Such an assumption about world demand is optimistic for coal producers and pessimistic for the planet. Coal use has been falling in Europe, the US and China, with global coal demand falling by 2 per cent in 2016, for the second year in a row. The International Energy Agency sees the traded thermal coal market as having contracted by 60 per cent in 2040 if countries keep their Paris commitments. If so, coal prices would fall by a lot more than Wood Mackenzie suggests.)

The lower world prices caused by the development of the Galilee Basin would discourage development of new mines – and thus the maintenance of production levels, as existing mines are worked out - in other coal producing regions.

Wood Mackenzie estimates that, by 2035, production in NSW’s Hunter Valley would be 86 million tonnes a year lower than would have been the case had the Galilee development not gone ahead.

For Queensland, this relative reduction would be 17 million tonnes a year for the Bowen Basin and 13 million for the Surat Basin. So, plus 150 million from the Galilee versus minus 116 million from the rest.

The Australia Institute economists’ study seeks to translate these relative reductions in production into relative reductions in employment. Based on Adani’s estimates of labour productivity in its mines, the whole Galilee Basin would employ between 7,800 and 9,800 people to produce 150 million tonnes per year by 2035.

By contrast, their most optimistic estimate is relative reductions of 9100 jobs in the Hunter Valley, 2000 in the Bowen Basin and 1400 in the Surat Basin, a total of 12,500.

How could a net increase in production yield a net decline in jobs? Much greater scope for economies of scale in the Galilee Basin. And that's before you take account of rapid advances in automation, such as driverless trucks controlled remotely from head office in Brisbane.

If we want Jobs and Growth in the future, mining ain’t the place to look.

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How economic reformers and politicians blew out power prices

The privatisation of the electricity industry may not be the worst of the many stuff-ups perpetrated in the name of “micro-economic reform”, but it’s certainly the one that’s cost the greatest number of Australian households and businesses the greatest amount of money.

Like most of the other stuff-ups, this one is explained by the naivety of the nation’s “economic rationalists”. They underestimated the willingness of governments to sabotage the privatisation process and the susceptibility of econocrats to being “captured” by the business interests they were regulating.

They underestimated the industry’s willingness to search out and exploit any weaknesses it found in the regulations. And they overestimated the willingness of consumers to devote their leisure time to penetrating the thicket of electricity retailers’ deliberately confusing pricing plans.

All this naivety arose from their failure to allow for the many oversimplifications of the neoclassical model of markets, which so permeates their thinking. Their plan was perfect on the pages of a textbook, but utterly other-worldly in the real world of politicians and business people on the make.

According to this week’s final report of the Australian Competition and Consumer Commission’s inquiry into retail electricity pricing, over the 10 years to 2017-18, the average price per kilowatt hour paid by residential customers rose by about 56 per cent above the rise in other consumer prices.

(The real increase in average residential customers’ bills was a mere 35 per cent, partly because households economised in their use of electricity, but mainly because 12 per cent of households invested in solar panels.)

The electricity industry divides into three parts: the mainly privatised power stations generating power and feeding into the national electricity market’s grid (the “wholesale” sector), the privatised natural monopoly companies transmitting power over long distances and distributing it through poles and wires in local areas (the “network”), and the mainly privatised companies selling power at the “retail” level.

As the commission’s report makes clear, stuff-ups in all three sectors have contributed to the price blowout.

The wholesale electricity market, via which individual power stations sell their energy to retailers in a real-time auction market, is a completely new, highly sophisticated, government-created market controlled by no less than three government agencies.

For many years it worked well, using the oversupply of generation capacity and the lack of growth in demand to keep the wholesale price low. By now, however, higher wholesale prices account for more than a quarter of the overall retail price increase during the decade.

Competition has been weakened by increased market concentration. Rather than selling each power station to a separate owner, the Queenslanders have just two (still government-owned) businesses running all their stations while, in NSW, two generators were sold to AGL – which, along with Origin and Energy Australia, has been allowed to dominate the national market at both the wholesale and retail levels.

Our big, clapped-out coal-fired power stations are now being closed, but in a way that enhances the oligopolists’ pricing power. Uncertainty over the Coalition’s intentions on reducing carbon emissions, and a separate stuff-up which has hugely increased the costs of gas-fired power stations, have mismanaged the shift from coal to renewable energy sources.

The oligopolists have found ways to game the auction pricing system, which the bureaucratic regulators have been too slow fixing, placing the interests of producers ahead of consumers.

Turning to the network, the micro-economic reformers originally were happy to see this government-owned natural monopoly distribution system privatised, provided prices were tightly regulated.

Except they weren’t. The new private owners fought whatever legal and political battles were needed to get the price regulation loosened, leaving the regulator with little ability to stop them exploiting a loophole which let them pad their profits by spending more on their infrastructure, whether needed or not.

State governments that still owned networks – mainly NSW and Queensland – fattened their profits by imposing excessively high standards of reliability on their networks, thus requiring them to spend big on upgrading.

This was “gold-plating”. When the regulator tried to discount the unnecessary spending, the NSW government took it to court and got the cuts curtailed. Why? Because it was planning to sell its network businesses and wanted to get top dollar at its electricity users’ expense.

The commission estimates that over-investment in NSW and Queensland now costs households in those states an extra $100 to $200 a year. All told, higher network costs across the national market explain 38 per cent of the increase in the average price per kilowatt hour.

At retail level, retail prices used to be regulated by state governments, until the micro-reformers persuaded them this was no longer needed because prices would be restrained by competition between the private companies.

Whoops. In reality, the reverse. The reformers should have known that oligopolists invariably try to avoid competing on price.

The problem was compounded by the way state governments maximised the sale price of their big retail businesses by selling them intact rather than breaking them up. The significant economies of scale this gave the newly purchased incumbents left them well placed to fend off new entrants to the market.

The electricity market’s bureaucratic regulators moved at a snail’s pace to correct this failure, anxious not to impinge on private firms’ freedom to overcharge their customers.

The commission estimates that mishaps at the retail level account for more than a fifth of the rise in average power prices over the decade. About a third of that is explained by spending on the selling costs (marketing, commissions, etc) of persuading people to buy a necessity, with the rest going straight to the bottom line.

That leaves “environmental” costs – hugely excessive incentives for people installing solar systems, the incentives associated with the renewable energy target (the RET) and some state government schemes – accounting for just 15 per cent of the real rise in average power prices, because the cost of these incentives has been shifted to other electricity users.

Little wonder the report concludes the national electricity market needs to be “reset”.

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There's a smarter way to encourage better staff performance

I’ve tried reading a lot of books about management in my time, but the only one that made sense was called The Witch Doctors, by two whip-smart journos on The Economist magazine.

They argued that, for almost a century, management experts hadn’t been able to make up their minds between two polar opposite theories. That’s why there were so many fads in management practice. Managers kept flip-flopping from one extreme to the other.

The first theory was Frederick Taylor’s scientific management, which boiled down to a belief that workers were dumb and lazy. They needed to be closely supervised at all times and motivated to work by being paid piece rates.

The other theory came from Elton Mayo’s Hawthorne experiments, which amounted to a belief that the better you treated your workers the harder they’d work.

It’s the central question in management theory and practice: how do you get your staff to do a good job and keep getting better?

For big organisations – business and government – the latest management super fad, “metrics”, where everything the outfit does is measured and workers are urged on by means of “key performance indicators”, is clearly a flip in the direction of Taylorism.

You’ve seen me fulminating against the folly of KPIs, which are often used as a substitute for management mental effort, and are far too easily – and frequently – fudged.

Only last month it was reported that Victoria Police is investigating suggestions that thousands of random breath tests have been faked, with police complaining of being pressured to conduct unreasonable numbers of breath tests on a shift, along with all their other duties.

Now a University of Sydney study commissioned by the NSW Teachers Federation, based on survey responses from about 18,000 teachers, has found they are drowning under increasing amounts of paperwork. I dare say a few Victorian teachers know the problem.

While it’s the age of computers that’s powering the metrics craze, in practice people with real jobs to do are being required to spend a lot more time – often their own time – on data entry, as part of the demand for them to be more “accountable”.

This is a significant cost along with the assumed benefits of improved information, a cost often underestimated by the metrics enthusiasts because the time it takes is “outsourced” to lesser mortals.

But let’s be positive. If the obsession with KPIs is a folly that will be abandoned soon enough, what better ways are there to encourage staff to do a better job?

After all, there aren’t many outfits whose performance couldn’t be improved, certainly not our schools. The teachers’ unions hate admitting it, but international tests show our student performance is declining, too many students are leaving school ill-prepared for adult life, and the gap between our top and bottom students needs closing.

The move to needs-based funding is just a first step. If the additional funds aren’t directed towards the cost of helping teachers teach better, not much will change.

But if the schools’ version of KPIs – standardised testing via NAPLAN and “accountability and transparency” via the MySchool website – has been a failure, what’s a better way?

The key is that we’ve veered too far towards Taylorism and too far from the Mayo mentality. The metrics approach is too top-down.

Bosses decide what the problems are and how they can be fixed, then impose their solutions on underlings, using KPIs to keep it simple, stupid.

Fortunately, teaching – but not other parts of the public sector – has avoided business’s error of trying to motivate people with pay-for-performance. “Extrinsic” motivation – doing things for the money – is a poor substitute for “intrinsic” motivation: doing things well because it gives you a greater sense of achievement. Because it’s satisfying to know you’re giving customers a good deal.

The growing administrative burden being unthinkingly imposed on professional staff is symptomatic of the top-down mentality. “We need this information for our use; whether you know why we need it and what we use it for is of little consequence – as is the time it takes you to comply.”

Smart bosses keep administrative demands to a minimum, make sure people know why particular information is needed and share it with the data providers so they can use it to improve their own performance. They should even be consulted about which performance information would be most useful.

A chalkie complains that “we are not being trusted as teachers to make judgments”. True. The key to improving the performance of organisations is for bosses (and politicians) to stop thinking they know better than the professionals and telling them how to do their jobs, but to respect, enhance and exploit the professionalism of their people.

It’s about asking people at the coalface what needs to be done to improve performance and what extra help they need to do so, including information about that performance. More consultation and a two-way flow of information.

But professionalism is itself two-sided. With greater freedom in decision-making goes greater acceptance of individual responsibility for improved performance and when something goes wrong.

And greater consultation with teachers at the coalface doesn’t equal putting union leaders on departmental committees making decisions about “protocols for data collection” or anything else.

Professionalism is supposed to mean putting your client’s interests – the interests of students, in this case - ahead of your own. It doesn’t sit easily with militant unionism.

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Business is busier dividing the cake than making it grow

The developed world’s economists have been racking their brains for explanations of the rich countries’ protracted period of weak improvement in the productivity of labour. I’ve thought of one that hasn’t had much attention.

Productivity isn’t improving as fast it could be partly because of the increasing number of our brightest and best devoting their efforts to nothing more productive than helping their bosses or customers game the system.

That is, helping them find ways around our laws – tax laws, labour laws, even officially supported accounting standards for how profits should be measured and reported.

What put this into my mind was all the kerfuffle a few months ago when Labor announced its plan to abolish refunds for unused dividend franking credits.

When Paul Keating introduced dividend imputation in 1988, unused credits weren’t refundable. Only in 2001 were they made so by John Howard. At first, the cost to the budget of this minor concession was tiny. Over the years since then, however, the cost has blown out extraordinarily.

Why? Because a small army of accountants, lawyers and investment advisers started advising their clients (many of whom can’t use their franking credits because they pay no tax on their superannuation payouts) on how to rearrange their share portfolios to take advantage of the new refund.

Thus did they turn a small concession into a hugely expensive loophole. Scott Morrison’s claim that Labor had overestimated the saving to be made by closing the loophole rested on his since-refuted assumption that it had failed to take account of the way the small army would respond by further rearranging their clients’ portfolios.

But that’s just one example. The truth is that helping their customers steal a march on the government is one of the main services the entire investment advice industry uses to justify its fees and commissions.

A particular favourite is helping people with loads of super turn the cartwheels necessary to frustrate the means-test rules and still get a part pension.

Some tax agents help their clients pad out their work-related tax deductions so the punters’ tax refunds are big enough to have the agents’ fee deducted without them feeling much pain.

For years, starry-eyed economists exulted in the phenomenal growth of the banking and financial services sector on the grounds of all the financial innovation going on.

Post the global financial crisis it’s clear much of the innovation was no more productive than finding new ways to minimise tax or get around financial regulations. And, of course, all the advances in “risk management” turned out to be more about slicing, shifting and hiding risk than reducing it.

It’s an open secret that our compulsory super system leaves employees open to hugely excessive fee charging, as layer upon layer of “advisers” clip each other’s tickets and send the bill to the mug savers.

The banks’ volume of trading of currencies, securities and derivatives in financial markets exceeds by many multiples the amount required to service the needs of their real-economy customers – or even to keep markets “deep” (able to process big transactions without shifting the price much).

The banks are just betting against each other - meaning much of the bloated financial sector’s activity isn’t genuinely productive.

And now there’s the “gig economy” – Uber, Airbnb, fast-food delivery services and all the rest.

They represent a strange amalgam of genuine innovation – using the internet and smart phones to bring buyers and sellers together much more efficiently than ever before – with a lot of terribly old-fashioned tricks to get away from the tax, labour and consumer protection laws faced by their conventional competitors.

"Oh no, the people who drive cars, ride bikes or do odd jobs at our behest aren’t our employees. Gosh no. So if they don’t pay their tax, make super contributions or insure themselves, it’s nothing to do with us."

Note that even if all the cost saving extracted from the hides of these poor sods was passed on to customers, it would still be less a genuine efficiency improvement than a mere income transfer from unempowered workers to consumers, most of whom are not in need of a free kick at other people’s expense.

Now, it’s true most of the practices I’ve described are perfectly legal. And many people have convinced themselves that if it’s legal it must be moral. But they can’t have it every way: it may be legal and even moral, but what it’s not is particularly productive.

For many years business people loved to lecture the rest of us about the need to grow a bigger pie, not squabble over how the pie was divided.

Turns out a surprising amount of business activity involves ensuring their slice is bigger than yours. If so, don’t be surprised productivity improvement is slow.

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How governments shift income from rich to poor

Everyone knows the gap between high and low incomes has grown. But much of what we think we know about why it’s happened, and what the government has been doing about it, is probably wrong.

For instance, many people imagine that the main thing governments do to reduce the gap between rich and poor is to raise much of their revenue via the most “progressive” tax in their arsenal, income tax. (A progressive tax takes a progressively higher proportion of tax from people’s income as incomes get higher.)

Sorry, that impression’s wrong.

Another strongly held perception is that, if the gap between high and low-income people is growing, it must be because of something the government is doing. For instance, stages two and three of the Turnbull government’s three-stage, seven-year tax plan are intended to make income tax significantly less progressive.

Sorry, it’s only partly true that growing inequality is caused by government policy.

Yet another misperception is that the inequality of incomes increases as each year passes.

These misunderstandings are what’s so great about the Australian Bureau of Statistics’ publication last month of its six-yearly “fiscal incidence study”, for 2015-16. It’s the most comprehensive guide to what’s been happening to income inequality and, in particular, how it’s been affected by government policies.

Professor Peter Whiteford, of the Australian National University, has written an excellent summary of the study’s findings.

The study allocates the federal and state taxes we pay between the nation’s eight million households, then allocates federal and state government spending to those households. (Some taxes, such as company tax, it can’t attribute to households. Nor some classes of government spending, such as spending on defence and law and order. But these omissions should roughly cancel out.)

So, on one hand, the study takes account not just of income tax, but also all the other, federal and state “indirect” taxes, most of which are “regressive” – they take a higher proportion of low incomes than high ones.

On the other hand, it takes account not just of government benefits in cash (pensions, the dole, family allowance), but also in kind - particularly healthcare (subsidised doctors and pharmaceuticals, free public hospitals, subsidised private insurance), subsidised aged care and childcare, plus pre-school, school, technical and university education.

So it starts with households’ “private income” – the money people earn from wages, profits, investments and superannuation payments – then subtracts the taxes they pay and adds the value of government benefits they receive in cash and kind to get their “final income”.

Get it? The difference between a household’s private income and its final income is the net monetary effect of all the things federal and state governments’ budgets do to the household’s budget.

It shows the extent to which government budgets redistribute income between high and low-income households.

Before we get to that, however, note that most economists believe the fundamental cause of rising inequality is changes in private incomes arising from globalisation and skill-biased technological change which, over many years, have caused the wages of high-skilled workers to grow much faster than those of low-skilled workers.

But the usual way to measure inequality is to compare not individual workers, but individual households, many of which contain two workers, plus dependent children.

It seems likely that, over the decades, the growing gap between high and low wages has been offset by the growing incidence of two-income families.

And note this: in more recent times – the six years between 2009-10 and 2015-16 - there’s been no increase in inequality.

Turning back to the effect of government budgets, the study shows they redistribute a lot more income than many people realise.

Get this: In 2015-16, the poorest 20 per cent of households (mainly pensioners) started with private income averaging just $168 week but, after taking account of their pensions and health and aged care benefits, their final income almost quintupled to $808 a week.

At the other end of the spectrum, the best-off 20 per cent of households (mainly two-income couples with good jobs) started with private income averaging $2863 a week, but had that cut to final income of $2168 a week, a loss of almost $700 a week.

How come? Well, on average they paid $714 a week in income tax and $178 in other taxes, but received just $16 in social security benefits and $192 in non-cash benefits, mainly school education.

Look now at the middle 20 per cent of households and, on average, their final income was only a little different from their private income because the taxes they paid were pretty much offset by the benefits in cash and kind (particularly education) they received.

See what’s happening? Government budgets are highly effective at transferring income from the top 40 per cent of households to the bottom 40 per cent.

And it’s not just progressive taxation that does this. Surprisingly, most of it’s done on the spending side of the budget.

The most common way of measuring inequality is the “gini coefficient”, where zero represents perfect equality between households and 100 represents one household getting all the income.

The study shows a quite high coefficient of 44.2 for private income being reduced to 24.9 for final income.

Now get this. Of this overall decline in inequality of 19.3 points, the progressive income tax scale explains only 4.5 points. And the regressive effect of other taxes reduces this by 0.8 points.

So the remaining 15.6 points of decline in inequality are explained by 8.1 points coming from governments’ cash social security payments, plus 7.5 points coming from the effect of governments’ benefits in kind, particularly health and aged care and education spending.

The first bit should be no surprise. As Whiteford reminds us, Australia’s system of social security payments is the most heavily means-tested in the world.

The big surprise is that our generally non-means-tested benefits-in-kind should do so much to reduce inequality.

My guess is that the high proportion of health and aged care benefits going to age pensioners does much to explain this.

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The taxes we pay come back to us - now or later

As we roll on to the federal election, there’s a surprising number of economic problems we should be discussing, but probably won’t.

For the longer term, the most important problem is the likelihood we’re not doing enough to meet our Paris commitment to reduce greenhouse gas emissions - which is, in any case, inadequate.

Linked with this is the appalling mess we’ve made of privatising electricity. Despite (and partly because of) Tony Abbott’s wrong-headed abolition of the carbon tax, this has left us paying power prices far higher than they need to be.

Linked with soaring electricity prices are soaring gas prices, caused by the gas companies’ gross overestimate of the amount of gas available for export through the many liquefaction plants they built. Absurdly, it would now be cheaper for local users to import gas from the world market.

The most pressing problem we should be discussing is the causes of the four-year-long run of weak growth in wages, which is not just crimping living standards but is by far the greatest threat to the holiest of holies: Jobs and Growth.

Then there are such minor matters as the way the burden of our years of weak growth has fallen mainly on youth leaving education, the way the “gig economy” threatens to undermine decent working conditions, the appalling run of seemingly respectable firms accused of cheating their employees and the terrible hash federal and state governments have made of TAFE.

The misbehaviour of the banks is being following by growing evidence of the misbehaviour of for-profit providers of childcare, aged care and before long, no doubt, disability services. What makes these people think they can mistreat their government-supported clients with impunity?

But if few of these problems are likely to get much attention from our campaigning politicians, what will? They’ll be arguing about their tax cuts being better than the other crowd’s.

With the budget still in deficit and the public debt still rising a decade after the global financial crisis, you’d think a decade of tax cuts is the last thing we could afford, but let’s do it anyway.

Why the obsession with tax? Partly because a government behind in the polls is trying to buy some popularity, partly because the more we obsess about tax the more our attention is drawn away from problems the government can’t or won't fix, but also because a lot of powerful and highly paid men (and I do mean mainly men) will not rest until tax has been “reformed” in a way that means they pay less and others more.

These well-off men are convinced they’re asked to pay far too much. They convince themselves of this by focusing on income tax and seeing it as a “burden” we have to bear without anything coming back our way.

In truth, we pay plenty of other federal and state taxes, which usually fall more heavily on the poor than the rich. And the taxes we pay come back to us as government benefits in cash (pensions, the dole, family allowances) and kind - particularly healthcare (subsidised doctors and pharmaceuticals, free public hospitals, subsidised private insurance), subsidised aged care and childcare, plus pre-school, school, technical and university education.

Every six years the Australia Bureau of Statistics conducts a “fiscal incidence study” in which it allocates the federal and state taxes we pay between the nation’s 8 million households, then allocates federal and state government spending to those households. (Some taxes, such as company tax, it can’t attribute to particular households. Nor some classes of government spending, such as on defence and law and order. But these omissions should roughly cancel out.)

The bureau published its study for 2015-16 last month. It found that, on average, households received $76 a week more in government benefits than they paid in taxes.

Break the households up by life stage, however, and you get a very different picture. For our 1.3 million single-person households aged under 65, the taxes paid by those under 35 exceeded benefits received by $171 a week. For those aged 35 to 54, this increased to $204 a week.

Why? Because most of them had jobs and were in good health, but none had children, meaning they got no family payments nor government spending on school education.

Our 1.4 million couple-only households aged under 65 are the big net contributors. For those under 35, their taxes exceeded their benefits by $480 a week. For those 35 to 54, it rose to $618 a week.

Our 2.5 million couples with dependent children paid a lot of tax, but also got back a lot of benefits, particularly family allowance, a lot of education spending and a fair bit of healthcare. All told, they paid just $42 a week more than they got back.

Skipping half a million single-parent households with dependent children (big net gainers) and a further half million couple households with non-dependent children (modest net payers), we come to the 1.8 million single or couple households aged 65 and over.

The couples got back $452 a week more in benefits than they paid in tax. That’s because they pay little tax, get a lot in pensions and get huge spending on health and aged care. Single retirees get back a net $576 a week, thanks to even greater spending on health and aged care.

So, younger working singles and childless couples are big net payers, couples with children roughly break even, and oldies really clean up. Just as well we all get old.

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Memo Canberra: it's not taxes, it's wages, stupid

With the season of peak political bulldust already upon us, and the media holding a microphone to all the self-serving and often stupid arguments the politicians are having with each other, here’s a tip: if you want sense about our economic problems and their solutions, turn down the pollies’ blathering and turn up the considered contributions from the econocrats.

Reserve Bank governor Dr Philip Lowe, in particular, has more pertinent things to say than Malcolm Turnbull, Bill Shorten, Scott Morrison and Chris Bowen put together.

The sad truth is the pollies main concern is to say the things they hope with get them elected, rather than to outline a convincing strategy to improve our economic wellbeing.

The media’s main concern is to sell us politics as entertainment – “Oh, the pollies had a terrible set-to this week; the side that’s ahead the polls had a bad week, while the losers had a good one, it’s getting sooo exciting” – not to hold politicians to account when they make wrong or dubious claims.

Predictably, the pollies have fallen to arguing about . . . tax cuts. Think of an election, think of bribing voters with tax cuts. The budget’s still in deficit, with the debt still high and rising, but blow that, let’s have a decade of tax cuts.

Both sides believe voters are as venal as pollies are self-serving. But, as always, the pretence that vote-buying tax cuts will do wonders for Jobs and Growth.  Yeah, right.

If Turnbull can con Labor into spending most of the time until the election arguing about tax, he’ll have pulled off a fabulous diversion from the most pressing source of voters’ present hip-pocket discomfort: weak wage growth.

It’s clear the parties’ focus groups are telling them the punters perceive the problem to be the “high cost of living”. With the consumer price index stuck at 2 per cent, that’s an obvious misconception.

It’s a misperception that favours the Coalition, the party that engineered the cuts in penalty rates, has a visceral class hatred of the unions and zero desire to shift the balance of industrial power back in favour of employees.

So who’s the one public figure pointing to the megafauna in the room? Lowe. He’s been talking about weak wage growth for months, seeing the problem as largely cyclical (temporary) and urging us to be patient.

Trouble is, as each quarter passes without any sign of the wage price index stirring from 2 per cent a year, that argument weakens. And in a recent speech he shifted ground, acknowledging that the “norm” for annual wage rises had shifted from 3 to 4 per cent to about 2 per cent, for reasons that are both cyclical and structural (lasting).

Cyclically, wages are weak because, at about 5.5 per cent, unemployment is still above the “conventional estimates” that full employment – the NAIRU, or “non-accelerating-inflation rate of unemployment” - is about 5 per cent.

What’s more, Lowe says, we may find that, like the US and other advanced economies, the NAIRU is now a fair bit lower than we’ve hitherto assumed.

True, Phil. But that’s a significant acknowledgement. What is it that causes the NAIRU to shift? Changes in the structure of the labour market.

In his search for structural explanations for our four-year absence of real wage growth, Lowe says part of the story is likely to be the way globalisation - greater trade between rich and poor countries - has changed the bargaining power of workers by effectively increasing the global supply labour.

But another important part of the story, he says, lies in the nature of recent technological progress. It’s no longer just a matter of firms installing the latest generation of better machines. It’s about software and information technology; intangible capital, not physical capital.

One thing this means is that some firms are much further advanced in applying and exploiting these advances than others. Lowe’s theory is that the lagging firms are trying to keep up by resorting to cost control, making them reluctant increase wages.

But though Lowe is the most thoughtful, pertinent and frankest of our public figures, even he is not yet prepared to voice the unthinkable: when globalisation and digitisation were changing the economy in ways that diminished the bargaining power of most of our workers, maybe this was just the wrong time for us to have been “reforming” wage fixing by shackling employees’ ability to bargain collectively.

Adequate real growth in wages is the key to adequate real growth in consumer spending and, by extension, business investment spending.

And, as Lowe reminds us, many households have taken on big mortgages under the implicit assumption that real wage growth will lessen the burden over time, as it always has. If that doesn’t happen, there’ll be trouble.

But not to worry. Tax cuts will fix everything.

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Economic growth doesn't have to wreck environment

Do you care about the natural environment and the damage our economic activity is doing to it? What if an official agency published some good news on the subject? Would you be interested? Would you be pleased?

Apparently not. Two weeks ago the Australian Bureau of Statistics published its “Australian environmental-economic accounts” for 2015-16, which contained what certainly looks like good news, but they attracted minimal interest from the media and environmental groups.

Perhaps had the news been bad there’d have been more interest. Instead, the bureau found that, in 2015-16, the Australian population grew by 2 per cent and the economy – measured by the quantity of goods and services produced during the year – grew by 3 per cent.

But our emissions of greenhouse gases grew by just under 1 per cent, while our consumption of energy increased by less than 1 per cent and our consumption of water actually fell by 7 per cent.

Get it? We increased our output of goods and services – the amount of our economic activity – but increased our inputs of some key natural resources by less. Our generation of a particularly pernicious form of waste, greenhouse gas emissions, also increased by less.

In other words, we improved the economy’s ecological productivity. Is that not worth noting?

Actually, those figures need to be examined a lot more closely before we pop too many champagne corks. But first, we need to remember why, whether the news they bring is good or bad, it’s worth taking a lot more interest in the annual “national environmental-economic accounts” than we have been.

Which raises a less conspiratorial explanation for our lack of interest in the environmental-economic accounts: because, as associate professor Michael Vardon, of the Australian National University, has pointed out, they’re still a work in progress, with not many people knowing of their existence and even fewer knowing how to extract from their raw numbers the message they’re sending about how much progress we’ve made on the path to ecological sustainability.

That the economy exists within the natural environment, and depends on it for the renewable and non-renewable natural resources we put into our production process, for the “ecosystem services” that grow our food, among many other things, and even for somewhere to dump all the material and airborne waste we generate, is undeniable.

Yet from the moment people started thinking about “the economy”, they viewed it in isolation from the natural environment that sustains it.

A hundred years ago, this seemed sensible. The world’s human population was a fraction of what it is today and we were much poorer than we are now, so it seemed human activity was having only a small impact on the huge natural world.

We knew little about soil erosion and salinity, the wider effects of fertilisers, damming rivers and overfishing, let alone that too much burning of fossil fuels and land clearing could change the climate.

Our economic national accounts and their bottom line, gross domestic product, rest on the happy assumption that we can measure the economy without reference to the natural environment that sustains it.

As greenies never tire of pointing out, GDP takes little or no account of the environmental costs that come with the economic benefits. It even counts spending to remedy environmental damage as another benefit.

Little wonder so many people have been looking for ways to bring the two sides into reconciliation, getting them into the same box, putting their measurement on a comparable basis, so economic benefits can be weighed against environmental costs.

Under the auspices of the United Nations Statistical Commission, the world’s official statisticians have been working to expand the long-accepted rules for measuring GDP, the “system of national accounts”, into a “system of environmental-economic accounting”, or SEEA.

Our bureau of statistics has been active in this project and in 2012 the official SEEA “central framework” was published by the UN. The bureau has been working on the huge task of carrying out and integrating all the physical and monetary measurements needed to put flesh on that framework for Australia.

Progress has been slow, especially because the government’s extraction of annual alleged “efficiency dividends” from the bureau's budget has reduced the work it can do.

But now let’s examine the news that we increased our ecological productivity in 2015-16, presumably leaving us better off both economically and environmentally.

First, this is a caution for all those environmentalists who keep repeating that, in a natural world of fixed size, it’s impossible for the economy to keep growing every year forever.

They’re right, of course, but the economic growth they’re thinking of – growth in the throughput of natural resources – isn’t the growth that GDP measures. Much GDP growth comes not from increased physical throughput in the economic machine, but from increased efficiency in the machine’s conversion of inputs (the greatest of which is not natural resources, but human labour) into outputs of goods and services, aka improved productivity.

So it is conceptually possible for GDP to grow while the use of natural resources doesn’t, or even declines. If that happens, it’s good news all round.

Second, these relationships are far too complex for it to make sense to look just at the change over a period as short as a year. The accounts show that, over the nine years to 2015-16, our population grew by 16 per cent and real GDP by 28 per cent, while energy consumption increased by only 6 per cent and water consumption decreased by 2 per cent.

Emissions of greenhouse gases decreased by 13 per cent relative to 2006-07. But generation of material waste seemed to be growing at about the same rate as GDP. Not good.

Finally, we need to know a lot more about the factors driving these changes, and whether they’re lasting or temporary, before we can conclude we’re making ecological progress.

And remember we need our consumption of fossil fuel energy to be falling rapidly if we’re to make the contribution we should to global efforts to halt global warming.

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Things I've learnt in 40 years as an economics editor

Fortunately, I made the greatest misjudgment of my working life while I was still at university in Newcastle. I concluded that economics was hopelessly unrealistic and boring, whereas accounting was practical and fascinating.

The most disillusioning moment of my working life came soon after I heard that I’d passed the last exam to become a chartered accountant. For years I’d told myself that, once I was qualified, I’d be confident, capable and contented as an auditor.

Nothing changed. I had to admit to myself I neither enjoyed being an accountant nor was much good at it. A year or so later I washed up at The Sydney Morning Herald to offer my services as an over-aged graduate cadet, at a much lower wage.

The news editor who hired me said he didn’t imagine I’d last, but it was worth a try. It was only at the man’s wake a year or two ago that his widow explained what he meant. Knowing I was an accountant, he’d tried to persuade Fairfax to pay me more than a cadet’s wage, but failed.

The editor soon suggested I try my hand at economic journalism. “Accountant, economist – pretty much the same thing, surely?” I bit my tongue and took his advice. Smartest move in my working life.

This month is the 40th anniversary of my appointment as the Herald’s economics editor – surely some kind of record. I’ve been writing for The Age for much of that time.

My survival is owed to a great extent to the trouble I had recovering all the economics I was supposed to have learnt at uni – and to the many hours people who ultimately became professors, Treasury secretaries and Reserve Bank governors spent on the phone with me, explaining the facts of economic life.

Whatever I learnt I immediately explained to the readers. For all those years I’ve seen my role as explaining how the economy works, why economists take the attitudes they do and what the government is seeking to achieve with its policies.

Four decades as an opinion writer leave you with a lot of strongly held opinions. In the early years I preached the prevailing gospel of economic reform; lately I’ve been more like a theatre critic, helping readers decide whether they agree with particular policies.

And, like many old journos, these days I don’t have much faith in either side of politics.

Economic life – and that’s what economics is, the study of “the ordinary business of life” – has changed hugely while I’ve been in this job. All the deregulation and privatisation of the Hawke-Keating years have greatly increased the degree of competitive pressure facing our businesses – from imports and other businesses – much of which they have passed through to their employees.

It’s a long time since anyone thought of Australia as The Land of the Long Weekend.

The world changes more frequently than it used to. The value of our dollar now changes by the minute; the Reserve Bank reviews the level of interest rates once a month. Jobs – even full-time, permanent jobs – have become less permanent.

Much of this change stems not from governments but from the rapid pace of technological change and globalisation (itself to a large extent the product of advances in telecommunications and information processing).

Our standard of living has risen greatly over the years, and we’re surrounded by gadgets that do amazing tricks, though it’s no longer certain that children will end up richer than their parents. Youngsters stay much longer in education, but will have to work until they’re 70.

Home loans have become much easier to get, but infinitely harder to afford.

Pay rises have to be bargained for – often less via unions than directly with the boss - and, over the past four years, have become tiny to non-existent. Rises used to be doled out several times a year by a bench of judges in Melbourne.

My enthusiasm for my topic – for my 43rd federal budget, for instance – is undiminished. Why? Because I keep learning more economics and because the economy, and economic fashions, keep changing.

One “learning” I've acquired is that, while economics - the business of producing and consuming, earning and spending – is and always will be vitally important, it needs to be kept in its place. An economics-obsessed nation isn’t likely to be a happy, fulfilled nation.

Malcolm Turnbull now portrays himself as the great champion of “aspiration”. He’s right. All of us should aspire to something better. But there are plenty of goals more worthy and likely to be more satisfying than gaining a higher income.

What would be wrong with aspiring to make life better for others rather than ourselves?

It’s the same with that great god, economic growth. It’s a good thing to grow. But why must the economy grow bigger rather than better?

I aspire to an economy where bosses are less obsessed with earning more and less convinced that being tough on their employees and customers is the way to get there. Why are they so sure making more money under those conditions will make them happy?

I aspire to an economy where bosses (and politicians) calm down and realise that working with an engaged and satisfied staff to give customers value for money is a more genuinely rewarding way to work and live. I can’t believe such an economy would do badly.

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